After Stock Lags, Metromail Seeks Buyer

Wall Street may be down on Metromail, but a number of its competitors are eager to acquire the database and direct marketing giant.

Looking for a way to boost its disappointing stock price, Metromail chairman, president and CEO Bart Faber announced Feb. 10 that Lehman Brothers had been retained to manage and formalize unsolicited merger and acquisition offers.

"We have looked at a couple of very large acquisitions,'' Faber said. "One we missed because of chemistry and lifestyle [conflicts] and one because of price. They would take us down a different path.

"The thing that prompted this was the aggressiveness of those approaching us. From the letters we got, we felt if we didn't take control and manage it, the process would [control us].''

The stock of Metromail (NYSE: ML), Lombard, IL, reacted to the news the next day by soaring $8 7/16 to its highest closing price -- $26 3/16 -- in a year. It reached $26 13/16 in early trading Feb. 12. Industry analysts estimate that offers for the company will range from $665 million, or $29 1/2 per share, to $887 million, or $39 7/16 per share.

Faber said he had received multiple offers and would expect interested takers to be from a range of specialties.

"All the compilers would have an interest and most of the integrated marketers,'' he said. "There may also be interest from media companies and large computer companies.''

Metromail would ideally like to compile a short list of buyers by March and have a tender offer by April, but Faber said that the process could be extended to July to take advantage of accounting for goodwill.

"Metromail presents real value as one of the few large companies you can gain as a platform to participate in the ongoing consolidation of the industry,'' said Jack Clark, an analyst with Paine Webber. "It should be a very competitive auction. There should be a long list of interested buyers.''

Clark places Harte Hanks, Acxiom and First Data Corp. at the top of that list. Harte Hanks, Billerica, MA, is flush with cash and looking for a partner to provide the database it lacks.

Metromail, one of just four or five companies with a proprietary database, would fill that need. "For companies that want [a database], they really have to buy, not build,'' Clark said.

Acxiom, Conway, AR, counts Metromail as a customer, and company leader Charles Morgan agreed that the company had a lot of value and that certain parts of it would interest Acxiom. But he said that Acxiom is not an active participant in the bidding process.

R.R. Donnelley & Sons, Chicago, the former parent and largest shareholder of Metromail, could also be a suitor. Donnelley originally purchased Metromail in 1987 and spun it off in an initial public offering in June 1996. Metromail fetched $20 in the IPO with Donnelley retaining 38 percent of the company. A provision of that IPO was a poison pill that prohibits Donnelley from selling its stake without Metromail's permission. Faber has confirmed that Donnelley will not inhibit Metromail's current strategy.

"Donnelley is closely allied with our board of directors and all the interests of the shareholders,'' Faber said. "Donnelley has been very supportive. They will work with us on the right course.''

Metromail could suffer the same fate as another former R.R. Donnelley subsidiary, Donnelley Marketing, and be acquired by First Data Corp., Hackensack, NJ. This scenario may be worth watching because it could impact the situation of Susan Henricks, the former Metromail president and CEO now being sued for violating her noncompete agreement by going to First Data Enterprises, a division of First Data Corp. A decision on the injunction to bar her from working for First Data Corp. is expected soon.

Henricks, who resigned Dec. 29 and started at First Data Enterprises on Jan. 12, had held options for 140,000 shares of Metromail stock, but it is unclear whether her recent actions would result in forfeiture of the options. Faber declined to comment, except to say that only a portion of Henricks' options were vested.

Unlike other direct marketing companies that are seeing solid stock gains, Metromail is stumbling to meet its earnings goals and suffered quarterly and annual losses from disappointing earnings by its Customer Insight Corp. subsidiary, a slightly negative impact of the Saxe Inc. acquisition and other one-time charges. The company suffered an earnings loss of 24 cents per share in the fourth quarter, far below the 50-cents-per-share net income analysts were expecting, according to Chicago-based Zacks Investment Research.

Although Metromail is performing much better than the numbers suggest, as evidenced by revenue and cash-flow growth, Faber has acknowledged that its stock is lagging. Wall Street sources estimate that Metromail should be trading in the $30 to $40 range.

Metromail executives are looking for a way to boost share price and seem convinced that a merger or acquisition is the best way to go. Faber said such offers had come "at substantial premiums to the current market price'' and that any action would be motivated "to maximize shareholder value.''

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